Shares of Vista Outdoor jumped 16.4 percent on Thursday after Gary McArthur, interim CEO, on the company’s fourth-quarter conference call provided an upbeat outlook for the business, including predicting a return to growth for the Outdoor Products segment in the back of the current fiscal year and a more normalized purchasing cycle going forward for the Sporting Products segment.

The stock’s uptick came despite McArthur’s announcement that Vista took an impairment charge covering non-cash goodwill and indefinite lived tradenames impairment of $374 million in the quarter that led to a net loss of $294 million in the fourth quarter ended March 31.

McArthur, a board member since 2015 who stepped in as CEO in early February following the resignation of Chris Metz, said the impairment charge was part of Vista’s annual impairment testing and reflected “the worsening economic environment with increasing inflation, decreasing consumer demand, and increasing federal fund rates, which resulted in reduced forecasts and increased discount rates.”

Vista also reported another challenging period that saw pro-forma Q4 EPS decrease 47.1  percent on an 8.4 percent revenue decline, capping off a fiscal year that saw pro-forma EPS decline 22.8  percent as sales inched up 1.1 percent

Pro-forma results exclude the impairment charge in the latest quarter as well as restructuring, transactional, severance and other non-recurring charges in both periods.

Finally, Vista provided cautious guidance for the current fiscal year with sales expected to decline between 8.1 percent and 4.8 percent.

However, results in the quarter and year exceeded company guidance. In the year, sales of $3.08 billion topped recent guidance in the range of $3.06 billion to $3.08 billion. Adjusted FY23 EPS of $6.40 in the year topped recent guidance in the range of $6.05 to $6.30.

McArthur also expressed confidence in Vista’s future, noting that the company’s “performance continues to be solid in these challenging times,” recent cost-cutting efforts “have placed actions better position the company for fiscal year 2024,” and the company continues to aim to spinoff the Outdoor Sports segment later this year.

“Upon completion of the spin, there will be two independent publicly traded companies, both of which will be two of the largest publicly traded companies in the outdoor space. Each company will have a dedicated strategic focus, tailored capital allocation approaches, and its own set of competitive advantages,” said McArthur. “Our company currently trades about 5 times enterprise value to fiscal year 2024 EBITDA, in line with ammunition and sporting company peers. While pure-play Outdoor Products focused peers tend to trade at double-digit enterprise value to EBITDA, we believe this value is not being reflected in our current trading price. And after the spin, we expect that our Outdoor Products segment should move towards trading at similar multiples to its outdoor peers.”

Sporting Products’ Q4 Revenues Slide 11 Percent
In the Sporting Products segment, sales decreased 10.9 percent in the quarter to $413.3 million due to the termination of the Lake City contract at the beginning of the third fiscal quarter and a decrease in volume, partially offset by improved pricing.

Vista’s Sporting Products segment includes CCI, Federal, HEVI-Shot, Remington, and Speer.

Gross profit decreased to $152 million, down 16.7 percent driven by lower volume, unfavorable mix, and increased commodity and freight costs, partially offset by improved pricing. Operating income decreased 17.2 percent to $124.7 million due to lower gross profit, partially offset by lower selling, general and administrative expense. Adjusted EBITDA decreased 16.7 percent to $130.8 million. Adjusted EBITDA margin decreased 220 basis points to 31.6 percent.

In the fiscal year, Sporting Products sales increased 1.2 percent to $1.76 billion, driven by improved pricing in all categories and higher volume in primer and rimfire, partially offset by the termination of the Lake City contract at the beginning of the third fiscal quarter and volume declines in pistol. Operating income dropped 8 percent to $552 million. Adjusted EBITDA decreased 8 percent to $577 million with the margin declining 318 basis points to 32.8 percent.

McArthur said, “Our Sporting Products segment had another strong year of sales and profitability as the market continues to normalize and experience lower sales volumes in certain calibers. Our culture of innovation has powered this business forward and combined with product mix improvements, we have successfully offset higher input costs. We expect the market to continue to normalize in fiscal year 2024 and remain confident in our ability to achieve mid-20s percentage point EBITDA margins long-term, well above pre-pandemic levels.”

In its Sporting Products segment, Vista has reached normalization of sales in its pistol and rimfire categories, while rifle, shotshell and primer categories continue to see demand exceed supply. Margins for the current fiscal year are expected come down slightly from the prior year as a result of raw material cost pressures and previous price actions in categories that have normalized.

Jason Vanderbrink, the recently-appointed CEO of Sporting Products, said on the call that Vista’s Sporting Products brands are well positioned to gain share in the current sluggish business climate in the firearms space.

He said, “Our multi-brand strategy is a tremendous strength in this market. Owning Remington and HEVI-Shot has added more revenue and significant operating income improvements from our previous Lake City commitment. With all of these changes, it is why we are confident in our guidance and why we feel the ammo market, in particular, the Sporting Products team is much better than five years ago. We expect to continue to take market share, expand our presence into new markets, make Remington more profitable than it is today, all while delivering mid-20  percent EBITDA margins and generating healthy free cash flow.”

Outdoor Products Segment Sales Sink 5 Percent In Q4
Sales in the Outdoor Products segment decreased 5.0 percent in the fourth quarter to $327.4 million. Organic sales were $241 million, down 30 percent, driven by a decrease in volume due to high levels of channel inventory and softening replenishment.

Vista’s Outdoor Products segment includes Bell, Bushnell, Bushnell Golf, CamelBak, Camp Chef, Foresight Sports, Fox Racing, Giro, QuietKat, Simms Fishing, and Stone Glacier.

Gross profit decreased to $85 million, down 19.3 percent driven primarily by volume declines and unfavorable mix, partially offset by improved pricing. The Outdoor Products segment logged a loss of $8.5 million in the period against earnings of $36.5 million a year ago. The loss reflected lower organic volume and unfavorable mix as well as higher selling and marketing expenses from acquired businesses. Adjusted EBITDA decreased 81 percent to $9 million with the adjusted margin decreasing 1,138 basis points to 2.9 percent.

In the fiscal year, Outdoor Products’ sales rose 1 percent to $1.3 billion. Organic sales were $990 million, down 24 percent. Operating income declined 62 percent to $62 million. Adjusted EBITDA decreased 39 percent to $125 million with the margin decreasing 633 basis points to 9.5 percent.

McArthur said, “Our Outdoor Products segment is navigating market-wide uncertainty and retail inventory challenges. We’ve taken tactical and strategic actions to ensure success long-term and combined with our earnings improvement program, we are positioning the segment favorably against near-term headwinds the outdoor industry is experiencing. We are beginning to see improvement in retail inventory levels from quarter to quarter, and we expect to see a return to organic growth in the back half of fiscal year 2024 once POS and sell-in become more closely aligned.”

He said that as a result of cost and earnings improvement actions taken, the Outdoor Products segment is better positioned to capitalize on long-term tailwinds.

“We are beginning to see improvement in retail inventory levels from quarter to quarter,” said McArthur. “However, retailers have been cautious in open to buy orders and adding additional inventory. We expect this trend to continue through the first half of the fiscal year for many of our brands.”

He also noted that recent weather has been a headwind for the Outdoor Products segment.  He said, “The record-setting snow season in the western states was a boon for our Giro snow business. History shows that long snow seasons delay the start of spring and summer camping and outdoor trips. This year is expected to be no different. We see a return to organic growth in the back half of fiscal year 2024, once point of sale and sell-in become more closely aligned. And longer term we continue to be bullish about the future of the outdoor recreation industry. It’s participation that remains above pre-pandemic levels and our brand’s strong positioning in the marketplace.”

McArthur said Vista remains on track to complete the previously announced separation in calendar year 2023. He said, “Key to completing the spin this calendar year will be establishing the Outdoor Products senior leadership team, a more stable macro-economic environment and improving Outdoor Product’s financial performance.”

Regarding Outdoor Products’ CEO search, he said the retained executive search firm continues to interview a strong pipeline of quality internal and external candidates. He added, “Our criteria include someone who has a proven track record, that has shown the ability to deliver value to shareholders, and who can advance our mission of stewarding great brands and giving more people into the outdoors. We believe our candidate pool of internal and external candidates will produce the right leader for the Company’s next chapter.”

Vista’s FY24 Guidance Calls For:

  • Overall sales in the range of $2.85 billion to $2.95 billion, down 8 percent at the midpoint;
  • Sporting Products Sales to be approximately $1.475 billion to $1.525 billion, down 14.8 percent at the midpoint;
  • Outdoor Products Sales to be approximately $1.375 billion to $1.425 billion, up 7.7 percent at the midpoint;
  • EBITDA margin range of 17.75 percent to 18.75 percent (against 2 percent), Sporting Products EBITDA Margin range of 26.75 percent to 27.75 percent (against 32.8 percent), Outdoor Products EBITDA Margin range of 12.00 percent to 13.00 percent (against 9.5 percent); and
  • Earnings Per Share (EPS) in the range of $4.50 to $5.00, down from $6.40 in FY23.